Renewables sector should rebound in 2022, this portfolio manager says

It’s been a rough year for renewable energy stocks as names across the board have fallen on hard times after a promising start to 2021 and interest in the sector began to fizzle out. More recently, troubles with US President Joe Biden’s Build Back Better legislation have created further doubt about a sector recovery. But portfolio manager Brendan Caldwell thinks investors should be looking at the bigger picture where he expects better results from renewables in the coming year due to the evolving macro environment.

“I like these renewable stocks on on the basis that I do believe that you’re going to see a continued demand for energy,” said Caldwell, CEO of Caldwell Investment Management, who spoke on BNN Bloomberg on Tuesday.

The renewables space covers lots of ground from small solar startups to global regulated utilities, but the overall gist is one of focus on non-fossil fuel dependent energy sources like solar, wind, hydroelectric power and renewable natural gas (RNG), with battery tech companies sometimes also added to the mix.

To see how the sector has done in recent years, take a look at the chart for the iShares Global Clean Energy ETF (iShares Global Clean Energy ETF Stock Quote, Charts, News, Analysts, Financials NASDAQ:ICLN), which aims to track the sector as a whole. That stock was a clear winner last year when it returned 140 per cent, and while January of 2021 was also a good month, that turned out to be the peak, as the stock and the sector started tumbling, with little letup along the way. Currently, ICLN is down about 25 per cent for the year.

The same or worse can be seen in any number of renewable names. On the global picture, heavyweights like Spanish electric utility Iberdrola, China’s JinkoSolar and Danish power company Orsted have all seen their shares prices fall in 2021, resulting in negative returns well into the double digits. 

More locally, Canada’s Brookfield Renewable Partners (Brookfield Renewable Partners Stock Quote, Charts, News, Analysts, Financials TSX:BEP.U) is down about 12 per cent year-to-date and power companies like Boralex (Boralex Stock Quote, Charts, News, Analysts, Financials TSX:BLX) and Northland Power (Northland Power Stock Quote, Charts, News, Analysts, Financials TSX:NPI) are well into the teens in losses. RNG companies Xebec Adsorption (Xebec Adsorption Stock Quote, Charts, News, Analysts, Financials TSX:XBC) and Greenlane Renewables (Greenlane Renewables Stock Quote, Charts, News, Analysts, Financials TSX:GRN) are down by a huge 75 per cent and 44 per cent, respectively, while fuel cell company Ballard Power (Ballard Power Stock Quote, Charts, News, Analysts, Financials TSX:BLDP) is off by about 44 per cent.

All pretty dismal, but Caldwell says there should be light at the end of the tunnel. 

“Clearly, going to go back two, three, four years these stocks were doing well but they’ve treaded water for north of a year now,” Caldwell said. “But I think what you’re going to probably see coming in 2022 is a renewed demand for power. You’re going to see a renewed demand for lots of things, and as inflation goes up a lot of these utilities have the ability to renegotiate and get approvals for higher prices.”

“So, I think you might see in 2022 these renewables have a second wind,” he said.

The sector took another potential hit more recently when the $1.75-trillion Build Back Better bill apparently lost the support of Democrat Senator Joe Manchin this past week, a crucial vote needed in the tight Senate to pass the bill. The BBB legislation plus the already passed $1.2-trillion Infrastructure bill contain funding for renewable energy industries such as solar, wind and car batteries and establish tax and funding programs for clean electricity for job creation and home energy retrofitting. The BBB legislation identifies $555 billion to confront climate change sources in energy/heating and transportation as well as investments in public transit and electric vehicles.

Canadian companies in the space have been in expansion mode this year, with names like Brookfield Renewable and Boralex showing strong year-over-year revenue growth. Brookfield managed a 32 per cent increase in funds from operations in its most recent quarterly report while Boralex showed revenue up 20 per cent year-over-year in its latest quarter. 

“We generated record third quarter FFO, and executed on several growth opportunities that demonstrate the value of our global platform, deploying capital across multiple technologies and jurisdictions, enhancing our position as a leading diversified clean energy business,” said Connor Teskey, CEO of Brookfield Renewable, in a November 5 press release. 

“As decarbonization of the global economy continues to move to the forefront, we are well positioned to capture the growing opportunity while earning strong returns for our investors,” Teskey said.